The pros and cons of alternative financial services for seniors
Nov 21, 2012, 8:26 a.m.
There is a wide range of alternative financial services (AFS) available to seniors and others. Some are as simple as discounts for senior citizens; others are all-inclusive senior financial services, from investments and savings to personal money management.
You may only discover these alternatives when you, a family member or close friend suddenly requires help with managing their financial affairs. Other persons discover early on that some of these alternatives are designed for and marketed to a needy world of low-income, high-risk persons who are not served by traditional financial industry companies like banks.
What are Alternative Financial Services?
Alternative Financial Services are an industry that serves persons who are unable to or do not prefer to use traditional financial services companies like banks, credit unions, mortgage companies, brokerages and other financial companies.
Included in this broad basket are:
- Payday loan stores
- Rent-to-Own companies
- Auto title lenders
- Personal financial assistants
- Sub-prime mortgage lenders
- Check cashing outlets
- Bill paying services
- Refund anticipation lenders
Naturally, there are pros and cons to use of any of these services. Since they are designed for and marketed as low-income, no-credit and senior financial services, seniors should pay special attention to the fine print of any agreements they might enter into, including discounts for senior citizens. Innocent items are not always what they seem to be.
Pros -- Do It
If you can find a truly reputable company that offers senior financial services, it can be a great benefit to those who are no longer able to or who no longer want to handle their own business or personal financial affairs. A good money manager can protect and preserve your assets and investments.
Seniors who are in failing health can benefit from the assistance of an AFS company to manage bill paying and other financial matters.
If you have lower income or have little, no or a poor credit history, AFS companies can offer you opportunities that otherwise you would not have access to, such as purchasing furniture or an automobile.
Persons who do not have traditional financial services, like a bank account, can cash checks, obtain loans and other services at AFS companies.
Cons -- Don't Do It
On the negative side of things, there are good reasons to avoid AFS companies. Some are unscrupulous and will take advantage of persons who do not understand traditional finances or transactions. Others charge exorbitantly high fees and interest rates for access to their lending products and services.
Payday lenders are not regulated by the government and can charge APR interest rates as high as they want, often 400% and much higher, according to a 2009 report by the FDIC. According to www.interest.com, auto title companies might charge 300% interest and can quickly dispose of vehicles when payments are in default.
Financial "advisors" sometimes prey on the failing mental capacities of seniors and churn investments to gain high commissions for themselves.
Sub-prime mortgage companies might use predatory lending practices to bilk their clients out of assets and provide loans to persons who are not really qualified to manage their payments; those clients soon lose their homes to foreclosure.
Best Advice about AFS
Research to locate a bona fide and licensed alternative financial services company. A good company will gladly provide documentation and references to you. Never invest in an unknown company. Ask questions and get good answers that you understand. Call referrals they provide. The bottom line is, as usual, buyer beware. Investigate before making any investments. If you need help, locate a licensed financial advisor first, not last.
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